Text/Wu Chenguang Gao Heng
Edit/Gale
Tencent Music, which dominates the domestic online music market, is ushering in the most violent period of volatility in history.
On March 22, Tencent Music released its financial report for the fourth quarter and full year of 2021, with revenue of 7.61 billion yuan in the fourth quarter, down 8.7% year-on-year, and net profit of 536 million yuan, down 55% year-on-year. In 2021, the revenue was 31.24 billion yuan, an increase of 7.2% year-on-year, and the net profit was 4.33 billion yuan, down 27% year-on-year.
Although Tencent Music did not directly explain the reasons for the decline in net profit, some analysts believe that this is affected by factors such as open-screen advertising restrictions, digital album sales restrictions, anti-monopoly penalties and the impact of pan-entertainment platforms.
In terms of business, the social entertainment business fluctuated, with revenue of 4.73 billion yuan in the fourth quarter, down 15.2% year-on-year; revenue in 2021 was 19.777 billion yuan, slightly lower than 19.8 billion yuan in 2020.
Correspondingly, in the fourth quarter, the mobile monthly active users (MAUs) of the social entertainment business were 175 million, down 21.5% year-on-year; the number of paid users of social entertainment was 9 million, down 16.7% year-on-year.
In this regard, Tencent Music said that due to the intensification of industry competition and changes in the macro environment, social entertainment MAU and paying users have declined year-on-year and month-on-month, but the company will continue to innovate products and strengthen the continuous construction of more social entertainment verticals such as audio live broadcasting, business going overseas and virtual interactive content, and continue to enhance the company's competitiveness.
Overall, the performance of Tencent Music fluctuates greatly, but for competitors, it is still "showing muscles".
There is volatility, but the broader market remains solid
From the perspective of the broader market, although there are some fluctuations, Tencent Music's annual revenue is still growing steadily.
The main highlights are that the online music service business remains stable, with revenue of 2.88 billion yuan in the fourth quarter, an increase of 4.3% year-on-year; revenue in 2021 is 11.467 billion yuan, an increase of 22.7% year-on-year. In the fourth quarter, the payment rate reached 12.4%, up from 11.2% in the third quarter and 9.0% in the same period last year. Most importantly, in the fourth quarter, online music paid users reached 76.2 million, a record high, an increase of 36.1% year-on-year.
Peng Jiaxin, Executive Chairman of Tencent Music Entertainment Group, said: "By continuously providing users with rich and high-quality music content, excellent music audiovisual experience, and diversified and industry-leading platform functions, we have achieved a net growth of 5 million online music paying users in a single quarter. ”
At the same time as the financial report, Pang Kasin also said that in order to provide greater liquidity and more protection for our shareholders in the changing regulatory environment, it is planned to be re-listed on the main board of the Stock Exchange of Hong Kong Limited in the form of an introduction subject to regulatory approval.
At the earnings call, Tencent Music also said that this time it is a direct listing and does not issue new shares, hoping that shareholders can enjoy the benefits of additional market listing without dilution of equity.
In fact, the introduction form of listing does not involve financing, and Tencent Music itself is not bad money. As of December 31, 2021, the total balance of cash, cash equivalents, time deposits and short-term investments held by Tencent Music was RMB24.69 billion.
In this regard, Zhang Yi, CEO of Ai Media Consulting, told Zinc Finance that the significance of the secondary listing in the form of introduction to Tencent Music is that due to Sino-US relations, Chinese stocks are regulated in the United States, resulting in uncertainty in the future market trend. Returning to Hong Kong for listing is more conducive to the development of Tencent Music and giving investors enough confidence.
In Zhang Yi's view, from the overall financial report data, Tencent Music is in a relatively stable adjustment period, and the entertainment live broadcast is affected by the big environment, and it is normal to start to slow down. The biggest attraction is the growth of paying users. Over the past few years, the user paid membership of music products has always been a bottleneck that is difficult to break through, so Tencent Music's breakthrough in this regard has brought new thinking to future growth.
Restricted, but equal across the industry
Looking at the period of fluctuations encountered by Tencent Music, the industry believes that the biggest reason is that it is restricted by multiple policies.
On July 24, 2021, the State Administration for Market Regulation asked Tencent Music to remove the exclusive copyright, which made the copyright barriers accumulated by Tencent Music for many years disappear.
In this regard, Tencent Music admitted that it was affected. In the earnings call, the company expects total revenue to fall by about 15-17% in the first quarter of this year, one of the main reasons is that some of the copyright distribution revenue this year will be affected due to the cancellation of exclusive copyrights.
This can also be reflected in the complaints of competitor NetEase Cloud Music. Previously, NetEase Cloud Music attributed the main reason for the continuous loss to the high cost of copyright purchase. NetEase CEO Ding Lei once complained that the exclusive sales model of the three major international record companies in China has made NetEase Cloud Music pay 2-3 times the cost of more than the reasonable price.
Today, with the lifting of exclusive rights, the entire industry is back on the same running line.
But for Tencent Music, the loss of copyright barriers only has an impact on revenue, which does not mean that users will lose, and for users, it is just more channels to listen to songs. The reason why Tencent Music's users fell by 1% year-on-year in the fourth quarter did not come down to copyright.
In fact, when it was subject to anti-monopoly penalties last year, Zhang Yi told Zinc Finance that Tencent Music's status for many years would not decline because of the opening of copyright. Increasing copyright procurement is an opportunity but may also be a burden for NetEase Cloud Music.
Zhang Shule, an industry commentator, believes that after the exclusive copyright is lifted, the online music platform has got rid of the pattern of competing for exclusive copyright, which is conducive to copyright price reduction.
But either way, not all copyright negotiations go well for other online music platforms. At least so far, regarding Jay Chou's copyright cooperation, in addition to Tencent Music, other online music platforms have not yet been established.
For how long it will take to "get" Jay Chou, Zinc Finance has consulted NetEase Cloud Music many times, but has not given a reply.
It can be seen that in terms of copyright, Tencent Music's advantages still exist.
In addition to copyright, Tencent Music is also subject to two restrictions. On the one hand, on July 26, 2021, the Ministry of Industry and Information Technology launched a professional rectification action in the Internet industry, focusing on mobile phone software opening screen advertisements, pop-up window advertisements, and mandatory personalized services; on the other hand, on August 27, 2021, the Cyberspace Administration of China rectified the chaos of the "rice circle", clearly requiring that fans should not be induced to hit the list and must not induce fans to consume.
Some analysts believe that these policies have had a certain impact on Tencent Music's advertising revenue. But this is also a problem facing the entire industry, in addition to Tencent Music, NetEase Cloud Music is also doing corresponding rectification. For example, the repeated purchase of digital albums is limited, and only 1 can be purchased by default.
It can be seen that the entire industry is subject to policy restrictions, and everyone is still in the same running line.
On the evening of March 24, NetEase Cloud Music released its 2021 financial report, with annual revenue of 7 billion yuan; adjusted net loss of 1.044 billion yuan; and monthly active users of online music services of 182.6 million.
In contrast, Tencent Music's annual revenue was 31.24 billion yuan, net profit was 4.33 billion yuan, and online music monthly active monthly activity was 615 million yuan. In a short period of time, it is not realistic for NetEase Cloud Music to catch up.
It has been impacted, but it still needs to be tested by the market
If the policy restrictions will not weaken Tencent Music's strength, the potential threat may come from the short video platform. Tencent Music also pointed out in its earnings report that the loss of mild users to other pan-entertainment platforms led to a 1% year-on-year decline in online music MAU.
In February 2022, according to the "2021 China Mobile Internet Annual Report" released by QuestMobile, in 2021, the use of short videos has surpassed instant messaging and become the industry that occupies the longest network time of people, accounting for 25.7% of the total time, and instant messaging accounts for 21.2%.
It is undeniable that short video platforms have impacted the use time of various apps. But some people also pointed out that although short videos can attract users by relying on the music that is popular for a few seconds, they have to listen to the full version of the online music platform.
On the other hand, short video platforms currently show more grassroots music, due to the uneven degree of professionalism, in the eyes of many professional musicians, short videos are full of saliva songs, and music literacy is not high.
In addition to grassroots singers, short video platforms will also attract some singers who are not very famous. A "Voice of China" top four contestants, who did not want to be named, told Zinc Finance that Douyin had contacted its agent many times, hoping to write a large number of catchy chorus parts in a short period of time, and other parts could be pieced together on the line, just to attract public users, singers can get corresponding returns from them.
Such a request was rejected by the singer, which in his opinion violated the original intention of making music. He admitted that the living environment of singers is becoming more and more difficult, only a few head singers can make money, and most of the others are looking for various ways out. "The short video platform is a traffic pool, some people will compromise, but some people are still insisting on themselves, after all, the songs that blindly please the public are short-lived and have no technical content."
In fact, the singer's views reflect the current situation of some part of the music industry, but they may not be representative of the entire industry. Perhaps, short video platforms and online music platforms will be a long-term coexistence relationship, and no one can replace anyone. At this point, Tencent music related people also agree with this view.
If the short video platform only preempts the user's time, the copyright does not have an advantage. So, since last year, short video platforms have also launched music APPS, will it hit Tencent Music?
The answer is no. It is obviously unrealistic to expect the newly born "baby" to challenge the hegemon for many years, and even the "rich second generation" born with a golden spoon must first withstand the test of the market. At least in terms of copyright songs, the road that NetEase Cloud Music has traveled, the pits that have been dropped, and the short video platform may have to be experienced again.
Zhang Yi believes that the challenge to the social entertainment business has a certain impact on Tencent Music, but at present, copyright, user base and original music groups are still the moat of Tencent Music. In the future, IP-oriented and exploring diversified models in the direction of emerging formats can effectively resist the risks brought about by the decline of social entertainment business. At the same time, the application and authorization of smart terminals such as smart cars and smart homes, as well as some special high-quality scenarios, will become the direction of Tencent's future development.
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